Recently, Cenovus Energy has been making headlines with mentions of the oil titan increasing by 500% over the past day. The CA-based company was formed in 2009 following Encana Corporation's split. After posting impressive Q1 earnings, likely as a result of soaring oil prices, tons of investors have been wondering if Cenovus Energy is a good investment. To help answer that question we’ll be looking at a few of the main arguments for and against adding Cenovus Energy to your portfolio. It's currently trading for around $18.70, up almost 50% YTD.
Is Cenovus Energy a Good Investment - Positives
Oil producers have been doing particularly well in recent months, but is it a good time to buy? It’s hard to predict but here are a few reasons why Cenovus Energy could make a great addition to your holdings.
Following its widely impressive earnings, Cenovus Energy raised its dividends by a factor of 3, bringing the annual payout up from $0.14 to $0.42. Dividends are always a welcome addition to any investment, so a company that just tripled its payout is definitely worth a look.
Cenovus Energy is using half of its free cash to repurchase shares, reducing the total amount on the open market to increase price. Cenovus Energy is aiming to keep the share price around the $60 mark for the time being.
Reducing debt while you’ve got plenty of free cash flow is a great way to secure yourself for the future. Seemingly, Cenovus Energy understands this as it pledged to use 50% of its free funds to reduce debt until hitting its debt target of $4 billion.
Looking at the company’s financials, it’s no surprise that they tripled dividends. Cenovus Energy’s net earnings for Q1 2022 is CA$1.6 billion Canadian, up almost 640% year-on-year. Free cash flow is equally impressive at CA$1.8 billion, up over 300% year-on-year.
Prices of oil and natural gasses have increased substantially over recent months as a result of sanctions placed on Russia. Because of this, Oil producers are having a great start to the year, with most posting double-digit increases to share price.
Cenovus Energy is always conservative when planning for the future. It stated that the increased dividend yield will still be viable even assuming a $45 price for West Texas Intermediate (a key benchmark for the oil industry). This means that even if oil prices drop sharply from here, Cenovus Energy should still be in good shape.
Is Cenovus Energy a Good Investment - Negatives
When deciding whether an investment is right for you, it’s equally important to look at any negative factors plaguing the company. Here are a couple of reasons to steer clear of Cenovus Energy.
Despite tripling its dividends, Cenovus Energy only yields a hair above 2%, meaning it's far below the rates offered by competitors like Suncor Energy and Canadian Natural Resources, both of which pay out more than 3.5%.
Although Cenovus Energy has been having a great few months, oil giant ConocoPhillips has sold Cenovus Energy shares worth around $1.4 billion. While ConocoPhillips likely had its own reasons for the sale, it’s never a good sign to see that quantity of shares dumped on the market.
Hype Asset of the Day Conclusion
All in all, Cenovus Energy is in a pretty great position, it’s enjoying all the benefits that have arisen from a sharp oil price increase. It’s making a clear effort to use those extra cash flow efficiently, focusing on rescuing debt and buying back shares. With guidance stating dividends are likely to increase again next year, it could be a great time to build a position in Cenovus Energy before dividend/value investors inevitably flock toward the oil producer. If you’d like to get more trending stocks direct to your inbox, check out our premium plans. Alternatively, head over to our FAQ page if you want to learn more about the services offered by HypeIndex.
HypeIndex is an AI platform that detects Hype in stocks and cryptos before it moves the market, providing reliable early detection for profitable investment opportunities.
The algorithm for our proprietary HypeIndex score is based on sentiment analysis, data science and machine learning.